Tax Concessions for Start-Ups
In December 2015, the Federal Government launched its National Innovation and Science Agenda which introduced a number of incentives for investors in Early Stage Investment Companies (ESICs). These incentives were introduced in recognition that one of the biggest barriers to start-up companies in Australia is the lack of available finance. The scheme is based on the successful UK Seed Enterprise Investment Scheme which raised over $500 million in start-up investment for almost 2,900 companies in its first two years. The highlights for investors are:
- A 20% non-refundable tax offset on equity investments into start-up companies capped at $200,000 per investor (and their affiliates) per year;
- A 10 year capital gains tax exemption for investors, provided investments are held for at least three years; and
The new arrangements apply from 1 July 2016.
Am I Eligible?
The incentives will be available for investments in companies that:
- Were incorporated during the last 3 income years
- Are not listed on a stock exchange
- Have expenditure and income less than $1 million and $200,000 respectively in the previous income year.
- The investor (and their connected entities) must hold less than 30% equity interest in the ESIC immediately after the equities are issued
Additionally, the following conditions must be met:
- The shares must be newly issued on or after 1 July 2016;
- If investment is more than $50,000, the investor must meet the sophisticated investor test;
- The Investor and the ESIC must not be affiliates of each other
Qualifying start-ups will need to demonstrate that they are focussed on developing new or significantly improved innovation for the purpose of commercialisation and show that the business has the potential for growth, has scalability, can address a broader local market and has competitive advantages. There are additional conditions and limitations on the concessions which can be discussed further with a Brentnalls SA team member.
If you are looking at starting a new business, you should consider these measures together with other factors in deciding how to structure your business. The following additional considerations may be relevant:
- Access to government grants (including Research & Development Tax Incentives, Accelerating Commercialisation Grants, etc);
- Ability to access debt and equity funding;
- Protection of intellectual property;
- Potential for foreign investment;
- Succession planning and exit strategies; and
- Tax implications
If you have a new business developing an innovative product, you may be able to utilise these concessions to encourage venture capitalist/angel investors to provide essential financing for your business. Alternatively, if you have funds available for investment in innovative businesses, there may be significant tax concessions available to you.
Please contact a Brentnalls SA team member to discuss these opportunities in more detail.
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The information provided in this information sheet does not constitute advice. The information is of a general nature only and does not take into account your individual situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.